Tuesday was a black day for many high net worth individuals (HNIs) on Dalal Street as Lupin, a favourite punter stock, crashed by around 17 per cent in a single trading session. Lupin’s plunge had a domino effect on other marquee pharma company stocks causing market wide panic. Key equity index Sensex and Nifty fell by over 1 per cent, their largest fall in more than two months.

Lupin was placed as collateral for margin trading by some leading market players and a severe crash in the stock forced them to unwind their positions to save on huge mark-to-market losses, brokers in Mumbai said.

Lupin caught the fancy of traders as ace investor Rakesh Jhunjhunwala holds 1.89 per cent stake in the company, which has been a top performer in his over $2-billion stock portfolio. The value of Jhunjhunwala’s stake in Lupin, which stood at ₹896 crore as on Monday fell to ₹735 crore on Tuesday. In the last quarter, Jhunjhunwala had raised his holding in Lupin by 5.8 lakh shares.

‘Worst is not over’

“As things stand, it is hard to imagine that the worst is over for Lupin,” said Rahul Arora, CEO, Institutional Equities, Nirmal Bang Securities. “The holy trinity of Lupin, Sun Pharma and Divi’s Labs has shaken investor confidence in the pharma sector. Overall, the Sensex, Nifty and Bank Nifty are trading at such absurd valuations that they will react sharply to any bad news like Lupin.”

Lupin lost ₹7,800 crore in market-cap on Tuesday as it fell by ₹174 to close at ₹860. The crash was due to the company’s disclosure that it received another warning letter from the US Food and Drug Administration on November 6 for its manufacturing facilities at Goa and Indore. Together, the plants contribute more than half of the drug maker’s US sales and approximately 20 per cent of its total sales. An earlier letter was received by the company in May. Market players fear even other clients would start asking questions to Lupin.

All eyes on USFDA

“The situation of Lupin suggests that the pharma sector is still not out of the woods,” said Arun Thukral, MD & CEO, Axis Securities. “A change in outlook for pharma stocks is now dependent mainly on regulatory changes in the US.” Among other pharma stocks Cipla fell 7.18 per cent. Divi’s Labs was down 3.2 per cent and Sun Pharma fell 2.5 per cent. The Nifty Pharma index crashed by 4.29 per cent.

DIIs sold stocks worth ₹2,046 crore, their largest single day selling this year so far. FPIs were net buyers of shares worth ₹461.